Enterasys Networks was down 30% today following its pre-announcement last night. Market has driven this stock up over 330% in last 52 weeks because the company has been viewed as a “turn around story” so this 30% drop is still fairly small. Company cited weakness in closing business during the final weeks of the quarter and negative impact of hurricane Isabel. Enterasys was planning to do 10%-15% of quarter’s sales forecast in the last week or so which is quite high for a networking company. This pre-announcement comes as a surprise for most investors. Weakness in some European countries towards the end of the quarter and Asia-Pacific might have also contributed to the shortfall, even though that wasn’t the reason given by the company. Company has a strong order flow from government (defense) vertical which was doing well but mgmt might have set its expectations too high and failed to deliver. What does this pre announcement tell us about others in the networking realm? For one, Cisco is a fierce competitor in Enterasys market and could’ve been more disruptive in selective verticals (Government) than planned. Most indications are that this shortfall was more of a company specific nature than sector wide. Enterasys has been experiencing significant share loss in past 4 yrs and last quarter might have been a one time positive blip. Where most companies are expecting increased revenue this quarter, this shortfall by Enterasys doesn’t bode well for reputation of the company. Enterasys has pre-announced twice in last three quarters. Investors need to be assured that Enterasys can gain share and grow to be a meaningful player in the networking market. Enterasys is working towards that end by introducing new products, increasing sales to new customers, working with more system integrators and improving its sales team. What remains to be seen is that if Enterasys can get over this bump and continue on the momentum it built for the June quarter. New products seem to be getting traction according to management but continuing success will need to be based on solid execution in all aspects and that’s what we all are waiting for.